There is no denying that the COVID-19 pandemic has hit America hard. Virtually no industry has gone untouched, but real estate, in particular, is feeling pressure across the board with lower demand, higher delinquency rates from tenants, and fewer real estate sales overall. While some sectors and regions will naturally fare better than others, there are ways for real estate investors to not only weather the storm but find opportunities in the current coronavirus crisis.
Below are four ways real estate investors can ride out the current crisis by protecting their current investments and continuing to seek and find worthwhile real estate investment properties.
1. Lock in lower mortgage rates
Property owners who are highly leveraged will have a hard time riding this situation, especially if unemployment and mandated closures continue. If you own active real estate investments, it's important to reduce your debt burden if at all possible. Consider refinancing in order to reduce your interest rate, or, if necessary, sell any assets to increase your liquidity while values of real estate are still high. Try to avoid becoming a distressed seller yourself, be forward-thinking, and assess how your investments will fair if things continue as is, or possibly get worse. Adjust your portfolio to allow you to ride it out.
2. Seek distressed real estate assets
Historically, recessions generate an increased number of foreclosures, short sales, real estate owned (REO) properties, and distressed sales as property owners feel the pinch of a slowed economy. If tenants aren't paying rent, it can be extremely difficult to maintain a property and pay any debt services relating to the real estate, creating the perfect storm for a distressed sale and discounted sales price.
The next few months -- and possibly years -- will likely be a great time to purchase distressed real estate assets, especially if prices drop, as they did during the Great Recession. Certain sectors like vacation and short-term rentals, student housing, office space, and retail may have greater distress rates than other asset classes like a Class A multifamily complexes or industrial buildings, which currently still have high demand and performance rates. Look for the areas of real estate that will likely have a need to sell and be willing to take a discount in order to do so.
3. Invest in the sectors still seeing high demand
Not all of the real estate industry is being negatively affected by COVID-19. Some companies have actually seen an increase in business and demand since the outbreak. Finding the real estate investment trusts (REITs), sectors, or regions that are faring the best and investing in those companies or property types can allow you to diversify your current portfolio and ride out this coronavirus storm from a safer and hopefully more profitable position.
4. Get creative
The last way to truly weather the storm is to get creative. You have to be flexible and adapt to the changing market and the current circumstances. If your sector is experiencing a decrease in demand, you may have to offer new incentives to attract new tenants.
If you're seeing increased cancellations or higher vacancy rates in your vacation rentals, consider updating your cleaning policies and informing potential customers on how you are keeping the property clean, or offer incentives for travelers for future dates.
If your tenant isn't able to pay rent because they are temporarily unemployed or suffered a significant loss in business because of required closures, work with them to find a creative solution for both parties. Maybe you take partial rent payments for a period of time, use their security deposit to help make the payment in full, or, if possible, waive a month or two of payments.
The best way to weather the storm is to have money in reserves -- ideally, a minimum of three months of expenses set aside. It's always a good idea to do periodic checkups on your investment portfolio to see how you would fare with a loss in income, higher vacancy rate, or reduced property value. Eliminate the assets that will become likely problems for you in the long run, and take advantage of the opportunity in the current market.
The most important thing you can do, however, is not panic. While it may be a tough storm to weather, you can get through this, and there will be new opportunities in the next few months and years.